Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

In "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A"), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:

- what factors affect our business;

- what our earnings and costs were;

- why those earnings and costs were different from the year before;

- where the earnings came from;

- how our financial condition was affected; and

- where the cash will come from to fund future operations.

The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding our consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as our Annual Report for the year ended March 31, 2025. Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. See "Forward-Looking Information" on page 30of this Quarterly Report, Item 1A "Risk Factors" in Part II of this Quarterly Report, and Item 1A "Risk Factors" in Part I of our Annual Report for the fiscal year ended March 31, 2025 for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.

Overview

Recent Developments

Macroeconomic Conditions

During the three and six months ended September 30, 2025, global macroeconomic and geopolitical conditions were, and continue to be, influenced by a number of factors, including, but not limited to, changes in global tariff and other trade policies, new and existing domestic and foreign laws and regulations, armed conflicts, foreign currency fluctuations, labor shortages and natural disasters. We believe such conditions are impacting customer spending and provider pricing decisions resulting in decreased demand, increased costs, and reduced margins particularly in areas outside of the United States.

Book4Time

On August 20, 2024, we acquired Book4Time Parent, Inc. ("Book4Time"), the global leader in spa management SaaS software, as further described in Note 12, Business Combination, to our condensed consolidated financial statements included under Part I, Item 1 of this quarterly report. The cash consideration for the acquisition totaled $145.8 million of net cash, partially funded by a credit agreement (the "Credit Agreement") we entered into on August 16, 2024 (the "Credit Agreement Closing Date"), with the lenders party thereto and Bank of America, N.A., as lender and administrative agent, as further described in Note 11, Debt, to our condensed consolidated financial statements included under Part I, Item 1 of this quarterly report.

Our Business

Agilysys has been a leader in hospitality software for more than 45 years, delivering innovative cloud-native SaaS and on-premise solutions for hotels, resorts, cruise lines, casinos, corporate foodservice management, restaurants, universities, stadiums, and healthcare facilities. The Company's software solutions include point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications that manage and enhance the entire guest journey. Agilysys also is known for its world-class customer-centric service. Many of the top hospitality companies around the world use Agilysys solutions to improve guest loyalty, drive revenue growth, and increase operational efficiencies.

The Company has one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, the Middle East, Asia-Pacific and India with headquarters located in Alpharetta, Georgia.

Our top priority is increasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.

Our strategic plan specifically focuses on:

The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, increasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry-leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.

Revenue - Defined

As required by the SEC, we separately present revenue earned as products revenue, subscription and maintenance revenue or professional services revenue in our condensed consolidated statements of operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:

Results of Operations

Second Fiscal Quarter 2026 Compared to Second Fiscal Quarter 2025

Net Revenue and Operating Income

The following table presents our consolidated revenue and operating results for the three months ended September 30, 2025 and 2024:

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The following table presents the percentage relationship of our condensed consolidated statement of operations line items to our consolidated net revenues for the periods presented:

Net revenue.Total net revenue increased $11.0 million, or 16.1%, during the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025. Products revenue decreased $0.4 million, or 4.1%, due to increasing customer preference for subscription-based software licenses instead of perpetual software licenses and to their decreasing need for hardware due to improvements we have made to our technology enabling more support for consumer-grade devices our customers can source elsewhere. Subscription and maintenance revenue increased $9.5 million, or 23.0%, compared to the second quarter of fiscal 2025 driven by continued growth in subscription-based service revenue including $5.3 million of Book4Time subscription-based service revenue. Total subscription revenue, including Book4Time subscription revenue, increased 33.1% during the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025. Professional services revenue increased $1.9 million, or 11.8%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.

Gross profit and gross profit margin.Our total gross profit increased $5.8 million, or 13.3%, during the second quarter of fiscal 2026 and total gross profit margin decreased from 63.3% to 61.7% compared to the second quarter of fiscal 2025 driven by changes in the composition of revenue by category. Products gross profit decreased $1.3 million, or 23.7%, and products gross profit margin decreased from 50.5% to 40.2% due to the composition of hardware and proprietary software products delivered. Subscription and maintenance gross profit increased $7.5 million, or 23.0%, and gross profit margin stayed consistent at 78.7%. Professional services gross profit decreased $0.5 million, or 9.2%, and gross profit margin decreased from 32.4% to 26.3% reflecting lower utilization rates due to continued hiring and training of new staff and timing of certain large projects.

Operating Expenses

Operating expenses, excluding other charges, net, and legal settlements, increased $3.2 million, or 8.7%, during the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025.

Product development.Product development increased $1.7 million, or 10.2%, in the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025 due to hiring and increased salary, incentive and employee benefits rates across our development teams.

Sales and marketing. Sales and marketing increased $1.0 million, or 11.2%, in the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025 due to hiring and increased compensation rates across our sales teams.

General and administrative. General and administrative remained consistent with the second quarter of fiscal 2025.

Depreciation of fixed assets. Depreciation of fixed assets remained consistent with the second quarter of fiscal 2025.

Amortization of internal-use software and intangibles.Amortization of internal-use software and intangibles increased $0.5 million in the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025 due to the addition of certain intangible assets resulting from the Book4Time acquisition.

Other (gains) charges, net.Other (gains) charges, net, consist of losses on asset disposals, severance costs, charitable contributions, employee retention credits, and acquisition costs related to business combinations.

Legal settlements.Legal settlements consist of certain customer and employment settlements and other business-related matters.

Other income (expense)

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Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in commercial paper, treasury bills and money market funds.

Interest expense. Interest expense consists of interest charges under our Credit Agreement and amortization of related debt issuance costs.

Other income, net.Other income, net, mainly consists of movement of foreign currencies against the U.S. dollar.

Income Taxes

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For the three months ended September 30, 2025 and 2024, income tax provision and the effective tax rate were primarily driven by activity in India and the U.S.

We are consistently subject to tax audits. Due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months that we cannot anticipate.

We have recorded and maintain valuation allowances offsetting the Company's deferred tax assets in certain U.S. States and foreign jurisdictions. The ultimate realization of deferred tax assets depends on various factors including the generation of future taxable income in the periods in which the underlying temporary differences are deductible. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a stimulus bill which was in response to economic consequences of the COVID-19 pandemic. The CARES Act provided an employee retention credit, which is a refundable tax credit against certain employment taxes. During the three months ended September 30, 2025, we recorded $5.9 million of employee retention credits including associated interest received in cash as other (gains) charges, net, in the condensed consolidated statements of operations.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in the Company's fiscal 2026, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of accelerated fixed asset depreciation and modifications to the international tax framework. We applied the relevant changes to the Company's income tax provision for the period ended September 30, 2025, which did not materially impact the Company's consolidated tax position. We expect future cash tax savings resulting from the full expensing of U.S. research and development expenses under the OBBBA.

Results of Operations

First Half Fiscal 2026 Compared to First Half Fiscal 2025

Net Revenue and Operating Income

The following table presents our consolidated revenue and operating results for the six months ended September 30, 2025 and 2024:

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The following table presents the percentage relationship of our condensed consolidated statement of operations line items to our consolidated net revenues for the periods presented:

Net revenue.Total net revenue increased $24.2 million, or 18.4%, during the first half of fiscal 2026 compared to the first half of fiscal 2025. Products revenue decreased $0.4 million, or 1.7%, due to increasing customer preference for subscription-based software licenses instead of perpetual software licenses and to their decreasing need for hardware due to improvements we have made to our technology enabling more support for consumer-grade devices our customers can source elsewhere. Subscription and maintenance revenue increased $20.1 million, or 25.3%, compared to the first half of fiscal 2025 driven by continued growth in subscription-based service revenue including $10.4 million of Book4Time subscription-based service revenue. Total subscription revenue, including Book4Time subscription revenue, increased 38.3% during the first half of fiscal 2026 compared to the first half of fiscal 2025. Professional services revenue increased $4.4 million, or 13.9%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.

Gross profit and gross profit margin.Our total gross profit increased $13.2 million, or 15.9%, during the first half of fiscal 2026 and total gross profit margin decreased from 63.0% to 61.7% compared to the first half of fiscal 2025 driven by changes in the composition of revenue by category. Products gross profit decreased $2.2 million, or 21.6%, and products gross profit margin decreased from 48.9% to 39.0% due to the composition of hardware and proprietary software products delivered. Subscription and maintenance gross profit increased $16.2 million, or 25.9%, and gross profit margin increased from 78.7% to 79.1% as revenue increases outpaced variable costs as a result of cost optimization discipline. Professional services gross profit decreased $0.9 million, or 8.3% and gross profit margin decreased from 33.1% to 26.7% reflecting lower utilization rates due to continued hiring and training of new staff and timing of certain large projects.

Operating Expenses

Operating expenses, excluding other charges, net and legal settlements, increased $12.3 million, or 17.5%, during the first half of fiscal 2026 compared with the first half of fiscal 2025.

Product development.Product development increased $4.4 million, or 14.2%, in the first half of fiscal 2026 compared with the first half of fiscal 2025 due to hiring and increased salary, incentive and employee benefits rates across our development teams.

Sales and marketing. Sales and marketing increased $5.8 million, or 36.5%, in the first half of fiscal 2026 compared with the first half of fiscal 2025 due to hiring and increased compensation rates across our sales teams, sales team additions from the Book4Time acquisition, and timing of marketing event and trade show activity.

General and administrative. General and administrative increased $0.3 million, or 1.3%, in the first half of fiscal 2026 compared with the first half of fiscal 2025 due to increased compensation rates across our administrative teams.

Depreciation of fixed assets. Depreciation of fixed assets increased $0.2 million, or 8.9%, in the first half of fiscal 2026 compared with the first half of fiscal 2025 due to the addition of fixed assets.

Amortization of internal-use software and intangibles.Amortization of internal-use software and intangibles increased $1.7 million, or 150.2%, in the first half of fiscal 2026 compared with the first half of fiscal 2025 due to the addition of certain intangible assets resulting from the Book4Time acquisition.

Other (gains) charges, net.Other (gains) charges, net consist of losses on asset disposals, severance costs, charitable contributions, employee retention credits, and acquisition costs related to business combinations.

Legal settlements.Legal settlements consist of settlements of employment and other business-related matters.

Other income (expense)

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Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in commercial paper, treasury bills and money market funds.

Interest expense. Interest expense consists of interest charges under our Credit Agreement and amortization of related debt issuance costs.

Other income, net.Other income, net, mainly consists of movement of foreign currencies against the U.S. dollar.

Income Taxes

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For the six months ended September 30, 2025 and 2024, income tax provision (benefit) and the effective tax rate were primarily driven by the impact of discrete excess tax benefits associated with Share-Based Compensation.

We are consistently subject to tax audits. Due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months that we cannot anticipate.

We have recorded and maintain valuation allowances offsetting the Company's deferred tax assets in certain U.S. States and foreign jurisdictions. The ultimate realization of deferred tax assets depends on various factors including the generation of future taxable income in the periods in which the underlying temporary differences are deductible. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a stimulus bill which was in response to economic consequences of the COVID-19 pandemic. The CARES Act provided an employee retention credit, which is a refundable tax credit against certain employment taxes. During the six months ended September 30, 2025, we recorded $6.1 million of employee retention credits including associated interest received in cash as other (gains) charges, net, in the condensed consolidated statements of operations.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in the Company's fiscal 2026, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of accelerated fixed asset depreciation and modifications to the international tax framework. We applied the relevant changes to the Company's income tax provision for the period ended September 30, 2025, which did not materially impact the Company's consolidated tax position. We expect future cash tax savings resulting from the full expensing of U.S. research and development expenses under the OBBBA.

Liquidity and Capital Resources

Overview

Our primary recurring source of cash is the collection of proceeds from the sale of products and services to our customers, including cash periodically collected in advance of delivery or performance.

Our cash requirements consist primarily of working capital needs, capital expenditures, and payments of contractual obligations. Our contractual obligations consist primarily of operating leases for office space and our Credit Agreement.

The Credit Agreement provides for a revolving credit facility in the initial maximum aggregate principal amount of $75 million (the "Revolving Facility"). The Revolving Facility includes the ability for the Company to request an increase to the commitments under the Revolving Facility by an additional aggregate principal amount of up to $25 million. On the Credit Agreement Closing Date, we drew $50 million on the Revolving Facility, the proceeds of which we used to fund the Business Combination described below. We have repaid the entire principal balance as of July 2025.

We have expanded our business in part by investing in strategic growth through business acquisitions. We have used cash as consideration in our business acquisitions, including $145.8 million of net cash, partially funded by our Revolving Facility, during the six months ended September 30, 2024, to complete the acquisition of Book4Time. We completed no business combinations during the six months ended September 30, 2025.

At September 30, 2025, 100% of our cash and cash equivalents, of which 88% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including commercial paper and treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We determine the fair value of commercial paper using significant other observable inputs based on pricing from independent sources that use quoted prices in active markets for identical assets or other observable inputs including benchmark yields and interest rates. We believe credit risk is limited with respect to our cash and cash equivalents.

We believe that cash flow from operating activities, cash on hand of $59.3 million as of September 30, 2025, and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.

Cash Flow

Cash flow provided by operating activities.Due to cash-based earnings of $35.0 million and a decrease of $24.1 million due to changes in net operating assets and liabilities. Cash-based earnings is net income of $16.6 million and $18.4 million of non-cash adjustments.

Cash flow used in investing activities.Consists of property and equipment purchases.

Cash flow (used in) provided by financing activities. Consists of $24.0 million in debt repayments during the six months ended September 30, 2025, proceeds from Employee Stock Purchase Plan purchases, and the repurchase of shares to satisfy employee tax withholding on share-based compensation.

Contractual Obligations

As of September 30, 2025, there were no significant changes to our contractual obligations as presented in our Annual Report for the year ended March 31, 2025.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies

A detailed description of our significant accounting policies is included in our Annual Report for the year ended March 31, 2025. There have been no material changes in our significant accounting policies and estimates since March 31, 2025.

Forward-Looking Information

This Quarterly Report and other publicly available documents, including the documents incorporated herein and therein by reference, contain, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "outlook," "forecast," "preliminary," "estimate," "expect," "strategy," "future," "likely," "may," "would," "could," "should," "will" and similar references to future periods. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. These statements are based on management's current expectations, intentions, or beliefs and are subject to a number of factors, assumptions, and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA of our Annual Report for the fiscal year ended March 31, 2025. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events, or otherwise.